How to Count Associated Companies for Corporation Tax Purposes?

If you own more than one company, or if your family members run their own businesses via a limited company, you might not realise that HMRC could see them as connected. These are called associated companies.

This can change how much Corporation Tax each company pays. The more associated companies for associated companies you have, the lower the tax limits go. We will demonstrate how it works in the subsequent sections.

This guide will explain what an associated company is, how to count them, and what it means for your tax bill.

What is Associated Company?

An associated company is when two or more businesses are linked by control. It can happen in two ways:

One company controls the other
Both companies are controlled by the same person or group

As per HMRC, “A company is an ‘associated company’ of another company if one of the two has control of the other or both are under the control of the same person or persons.”

Control usually means more than 50% of shares or voting rights, or the right to most of the assets if the company winds up.

This isn’t the same as being part of a “group” for accounting purpose. It’s all about who holds the power to decide what happens.

For Example

If you own 60% of Company A and another person, who is connected to you, owns 60% of Company B, both companies are under your (or possibly shared) control. So, they are associated for corporation tax purposes.

This rule also applies to companies based outside the UK. It doesn’t matter if the other business pay tax in different country. If the control is there, HMRC treats them as associated for UK Corporation Tax purposes.

Why Do Associated Companies Matter for Corporation Tax?

Associated companies decide how much corporation tax your company has to pay. In the UK, big companies with high profits pay a higher tax rate while smaller companies with low profits pay a lower rate.

Here are the main associated companies for corporation tax rates in the UK.

Rate Band	2025/26
Profits between £50,000 to $250,000	Marginal Rate
Small profits rate- profits less than £50,000	19%
Main rate- profits above £250,000	25%

These profit limits get split if you have more than one companies that are linked. And the more associated companies you have, the lower the profit limit for each one.

For Example

If your company ABC Ltd has two associated companies- XYZ Ltd and PQR Ltd then you have three companies in total. So, the tax thresholds get divided by three. So, here’s the new tax threshold for each of your associated companies.

Rate Band	2025/26
Profits between £16,667 to £83,333	Marginal Rate
Small profits rate- profits less than £16,667	19%
Main rate- profits above £83,000	25%

Having more associated companies can mean paying more tax even if each company is small. The tax cost can go up just because the companies are linked.

What Are the Rules for Determining Control?

To decide if two companies are associated, HMRC looks at who has control. Control means the power to run the company or make big decisions. It can come from owning most of the shares, having voting power or getting most of the assets if the company closes.

If a person or an entity owns more than 50% of shares or voting rights or is entitled to more than 50% of the assets, then they are said to have control.

Control can be direct or indirect. Direct control means the person or company owns the shares in their own name. Indirect control means they control a company that controls another company.

Here is a simple example of direct control.

Person or Entity	Company A Ownership	Company B Ownership	Are they Associated Companies?
John	60%	70%	Yes

In this case, John controls both the companies with more than 50% ownership. So, Company A and B are associated companies.

Here’s what indirect control looks like:

Entity	Controls	Ownership
Company X	Company X	100%
Company Y	Company Z	80%

In the above case, Company X controls Company Y and Company Y controls Company Z. That gives Company X indirect control over Company Z. So, Company X, Y and Z are associated companies.

Control is the key test for association. If control exists, HMRC will treat the companies as linked for corporation tax purposes.

How do Connected Individuals Affect Association?

When two connected persons control different companies, HMRC treats these companies as associated for corporation tax purposes.

Connected persons include your spouse, civil partner, siblings, parents, children and business partners. If one of these people owns or controls a company and you own or control a different company, HMRC might still treat the companies as associated for corporation tax purposes.

For Example

Let’s say, a husband owns 60% of Company A and his wife owns 60% of Company B. On paper, both companies are not connected and controlled by separate owners. But also, HMRC can treat both companies as associated for corporation tax purposes. This is because they can attribute the rights of one person to another.

This rule is called the attribution of rights. Under this rule, HMRC may count your spouse’s shares as your own when deciding if you control a company even if you are not listed as director or shareholder.

Additionally, HMRC might also look at the overall situation even if the ownership is split to stay under the 50% mark. If there is a clear pattern of working together or if one person has influence over the other’s company, they might be treated as connected for tax purposes.

However, if there is no substantial commercial interdependence between the concerned companies, the rights of one person will not be attributed to another.

So, it is important to think carefully before setting up companies under different family members. Even if the connection might seem separate on paper, HMRC may still treat the companies as linked. This can heavily affect your tax bill.

How to Count the Number of Associated Companies for Corporation Tax?

Here’s a simple three-step method to work out how many associated companies for corporation tax you have.

Step 1: Identify Control

First find who controls each company. If the same person or entity controls multiple companies, those companies are associated.

Step 2: Include Connected Persons

Look at the people who’re connected to you. This includes your spouse, children, parents, siblings and business partners. If they control a company and you control another, those companies may still be associated.

HMRC might even treat your relative’s control as your own under attribution rules if there is substantial commercial interdependence between the concerned companies.

Step 3: Exclude Exceptions

Some companies might be under control but do not count as associated. For example, if a company has not traded at all during the accounting period and has not traded in the last twelve months, it can be ignored. Dormant companies are often excluded if they meet this rule.

You should also include all companies that were associated at any point during the accounting period. Even if a company become associated for just part of the year, it still counts.

Also, companies outside the UK count if they are under common control. It does not matter where they are based. If control exists, the company must be included in the count.

Checklist to Count Associated Companies

Use this checklist to make sure your count is complete.

Have you checked who owns or controls the company?
Have you considered the companies owned by connected persons?
Have you assessed whether commercial interdependence exists between your company and the companies owned by connected persons?
Have you included companies that were associated during the year?
Have you excluded dormant companies?
Have you included overseas companies under the same control?

Getting the count right helps you avoid unnecessary tax bills and keeps you compliant if HMRC reviews your structure.

How to Avoid Unexpected Tax Bills Due to Association?

Many business owners form new companies without thinking about how it might affect their tax bill. But if the new company becomes associated with one you already own, your Corporation Tax thresholds will be split. This can lead to a higher tax rate than you expected.

Before you form a new company, always check if it will be treated as associated. If you already control one company, and you or your family control the new one, the two could be linked. Even if the ownership is shared or looks separate on paper, HMRC may still treat them as associated based on control and personal connections.

Also think about timing. If you plan to open a second company near the end of your accounting period, that company might still count for the full year when splitting thresholds. You might lose some tax savings just because of the way the timing works.

You should also look at how the companies are structured. Putting shares in a partner’s name or spreading ownership across family members does not always help. If there is still control or shared influence, HMRC may group the companies together anyway.

In some cases, it is best to speak to a tax advisor before making any moves. This is especially true if the company will be partly owned by relatives or business partners. A short meeting can save you a surprise tax bill later.

Questions to Ask Before Forming Another Company

Will I control more than 50 percent of the new company?
Will a family member or business partner be involved?
Are we already running another company under common control?
Will this change affect my Corporation Tax thresholds?
Should I get advice before registering the new business?

Thinking ahead can help you avoid problems later. Tax rules around associated companies are strict, and the cost of getting it wrong can be high. A little planning can protect your business and your profits.

Conclusion

Counting your associated companies the right way is very important. If you do not count them correctly, your company might have to pay more tax, even if it makes only a small profit.

When you have more associated companies, your corporation tax limits go down. This means your company can reach the higher tax rate much faster than you expect.

Many people find out about this only when they file their tax return or when HMRC checks their accounts. By then, it might be too late to fix the problem without extra cost.

To avoid mistakes, check who controls each company before you set up a new one. If you are not sure, ask a tax advisor to help you. Taking advice early can save you trouble and money later.